Indian businesses will soon have to spend 2% of their earnings on CSR by law
- 30 October 2013
NEW DELHI: The Indian government has approved a bill making it mandatory for some companies to spend 2% of their profit on corporate social responsibility (CSR), which will set stricter compliance and create new opportunities for business spending on environmental issues and clean energy.
The landmark Companies Act which was issued by the Ministry of Corporate Affairs in August, states that companies with a net worth of US$81.7 million or over, a turnover of US$163.4 million or more, or a net profit of over US$816,500 in a financial year, must spend at least 2% of their average net profit on CSR programs over three preceding years.
Companies are advised to give preference to CSR activities that best align with the business. 'Environment Sustainability' is listed as one of the eligible CSR activities.
The move makes India one of the first countries in the world to mandate spending on social welfare as part of company activity by law.
Ministry of Corporate Affairs Additional Secretary M J Joseph said that, "when it came to embedding CSR into business strategy, the execution and mainstreaming of strategy was of paramount importance."
Subaskar Sitsabeshan, Program Analyst, The Climate Group comments: "This new bill will facilitate an enabling environment to develop longer term strategies to address some of the most persistent economic, social and environmental issues facing Indian society. Furthermore, this bill has the potential to play a catalytic role in bringing together many corporates under an umbrella to address some of these issues collaboratively for much greater impacts.
"It is great to see ‘Environment Sustainability’ being one of the key activities outlined in Schedule VII of the Act, which provides a platform for companies to enhance their efforts in this space. In the future, we expect that activities outlined in this Bill will be broadened to include aspects of sustainable development including promotion of renewable energy, improvement of energy efficiency, implementation of sustainable transportation facilities geared by advancement in communication technologies that will eventually reduce pollution to counter adverse effects of climate change."
The CSR provisions are likely to be effective from financial year 2014-15.